There’s a Right Way and a Wrong Way to Use a Cash Gift
Mortgage guidelines for Ridgewood Home Buyers are becoming more strict and down-payment requirements are increasing. It wasn’t that long ago that you could finance a home with zero down. Today, many mortgages require at least ten percent down.
These changes have led to an increase in the number of buyers accepting cash gifts from family members
Gifts are Ok in most cases. But if you don’t accept the gift the “correct” way, the bank could reject it.
You can’t simply dump a cash gift into your bank account. You need to follow a series of steps and keep good records.
- You will need a gift letter signed by all parties.
- You will need documentation of the gifter’s withdrawal of funds.
- You will need proof of giftee’s deposit of funds via teller receipts.
Banks and brokers require these steps for 2 reasons.
1. They want to make sure that the cash gift is not laundered money.
2. They want to make sure the gift is really a gift and not some sort of loan.
Banks will typically require that a letter, like the one below, be included in your application:
I am the (relationship to borrower) of (borrower). Please let this letter serve as proof that I am gifting (name of borrower ) (gift amount) to be used for the a home at (address of property).
This is a gift, not a loan, and I do not expect to be repaid.
Sincerely,
[Gifter Signature]
Buyers receiving cash gifts should make sure that gifted funds are not commingled at the time of deposit. If the cash gift is for $15,00 the bank’s deposit slip should indicate that a $15,000 deposit was made. No more, no less. Don’t add a two hundred dollar deposit to the transaction. The gift deposit should be a separate and distinct transaction.
Gifting funds between family members can create both legal and tax liabilities. If you’re unsure about how donating or receiving a gift may impact you, call or email me directly. If I can’t help you with your questions, I can refer you to somebody that can.
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What Clients Are Saying About Al Donohue…
Sanjay and Uvarshi Tiwary – Ridgewood
“Thank you very much for helping us sell our house. You and your team have lived up to the reputation of representing a great company and fantastic individuals. You have proven extremely trustworthy and effective in an otherwise terrible real estate market. Overall we are extremely fortunate to have had chosen you as our representative for this transaction. I want you to know that we will return to NJ in a few years and we’ll be knocking at your door to help us find a place!”
